How a total n00b mined $700 in bitcoins

We take a Butterfly Labs Bitcoin miner, plug it in, and make it (virtually) rain.

This is the second in a two-part series exploring Butterfly Labs and its lineup of dedicated Bitcoin-mining hardware. In part one, we looked at the company and the experiences customers have had with it. In part two, we share our experiences running a Bitcoin miner for a couple weeks.

Toiling in the Bitcoin mines

There is a whirring, whining presence in my dining room. I notice it every time I walk through. Every day, it sucks down about one full kilowatt-hour of electricity. In a year, it will consume almost $100 worth of juice—and that's on top of the $274 it costs to buy the box in the first place. Oh, and it's hot, too. If I moved it into my office and could stand the noise, I could keep a cup of coffee comfortably warm on top of the thing. Why on earth would anyone want such a disagreeable little machine in their home?

The short answer: every day, that machine magically generates something like $20 in bitcoins.

The BFL miner: A video intro

Allow me to introduce you to the Butterfly Labs 5GH/s "Jalapeño" Bitcoin miner.

A newbie and his miner

Ars Senior Business Editor Cyrus Farivar tapped me on the shoulder a few weeks back with a proposition. "I've got a Butterfly Labs Bitcoin mining box," he explained. "There aren't that many in the wild right now. I'm working on a story about the company, but I'm about to go on vacation. Do you want to see if you can get the thing working while I'm out?"

I was intrigued. Bitcoin? That's the electronic currency that's quickly rocketed from lame nerd project to ludicrously valuable hot topic, right? I didn't know a lot about the world of Bitcoin other than the fact that "mining" them involved people building custom PCs with tons of video cards to handle the math. I certainly didn't know how to "mine" bitcoins myself or what to do with the things once I had them. I just knew that people eventually try to trade them in for cash somehow (but how to do that was also a total mystery).

And yet here was the opportunity to take a piece of hardware I'd never heard of and see if I could use it to magically create some money out of nowhere. I told Cyrus to send me the Butterfly Labs miner. As he trekked off to Peru for his vacation, I settled in with the little black box.

Butterfly Labs is a company that has drawn a fair amount of controversy for what the Bitcoin community at large perceives as a string of broken promises. The company sells ASIC-based Bitcoin miners—machines that are built around customized chips that do nothing except compute SHA-256 hashes very quickly. Its smallest miner (the one I had to get working) is codenamed "Jalapeño" and computes a bit over five billion hashes per second (or 5GH/s). The problem is that Butterfly Labs started selling the machines long before it actually had a product to sell. It began taking paid-in-full preorders back in mid-2012, and thousands of customers opened their wallets for Bitcoin miners ranging from the small 5GH/s miner at $274 all the way up to the large 500Gh/s miner, which costs $22,484.

Butterfly Labs promised certain performance targets to customers—it initially felt confident that its application-specific integrated circuit (ASIC) designs would deliver one billion hashes per second for every 1.1 watt of power consumed. This proved extremely optimistic. Hardware delivery slipped multiple times. Now, a full year later, the first few real live Butterfly Labs boxes are finally being shipped, though no small number (as many as 30) were sent to journalists to review rather than to paying customers.

But when the little black box showed up on my doorstep, I had no idea about the deep and extremely vocal Bitcoin community or the story behind Butterfly Labs. I didn't really even fully understand what the miner did. I simply knew that I wanted to get this thing working and make some money.

Out of the box

The 5GH/s Jalapeño miner is a black rounded cube with a brushed metal finish. The only connectors on the exterior of the device are on the back: a mini-USB port for data and a power plug. Near the power plug are a series of small red LEDs that the device uses to tell you its status, though there was no documentation in the box to explain what the LEDs meant. The front of the cube contains another red LED to indicate power.

There are two sets of vents, one low on the front and the other high on the rear. The device's internal 80 mm fan draws cooler air up from the front through the fins of the large heat sink mounted on the ASIC chip. It expels the now-warm air out through the top vents.

Front view of the Butterfly Labs 5GH/s Jalapeño miner. The understated Butterfly Labs logo is on the top of the device; visible on its front are the air intake vents.

Another look at the front of the Jalapeño. The exterior of the device is dark brushed metal.

Beneath the metal shell, the interior of the miner is dominated by the ASIC's heatsink. The 80 mm fan, removed for this image, sits atop the heatsink.

The rear of the Jalapeño miner, showing the power and mini-USB connectors.

The Jalapeño miner, disassembled.

After I unboxed the thing and took some photos, I was sort of stuck. I had no idea what to do with the little rounded-off cube.

Before I consulted the Internet for documentation, I tried briefly—and in vain—to see if I could make it work on my own. "I am a geek, and I work at Ars Technica, which is a major technology website of some renown," I thought. "I have built Web servers. I use, like, Linux and stuff. How hard can this really be?"

Too hard, apparently. Connecting it via USB to any of the computers I had handy didn't really cause anything to happen. The device showed up on the USB bus and identified itself, but it didn't do anything. I naively wondered if there was some kind of application I needed to download to "log on" to the device to get it mining.

Enlarge/ When connected via USB, the miner shows up as a "BitFORCE SHA256 SC," which is the ASIC identifier.

Lee Hutchinson

I admitted defeat and consulted the Internet. Unfortunately, as I was to quickly learn, I was coming at the miner with a certain set of false assumptions. The BFL miner is a pretty simple device; it doesn't have an "interface" or a console or anything like that at all. It talks via serial-over-USB, and you do need an application running on your computer to actually do anything with it.

In fact, you need several things: a mining application, a "wallet," and a "pool," though the pool is optional.

Lee Hutchinson
Lee is the Senior Technology Editor at Ars and oversees gadget, automotive, IT, and culture content. He also knows stuff about enterprise storage, security, and manned space flight. Lee is based in Houston, TX. Emaillee.hutchinson@arstechnica.com//Twitter@Lee_Ars

195 Reader Comments

Doesn't the EFF accept bitcoin donations? I realize the value to the story, but it is technically incorrect to imply the only way to donate your bitcoins is through an arduous currency conversion.

They do, and that is how I donated. I don't believe I imply anywhere that I had to convert BTC to dollars to donate; I did the conversion because I wanted to see the process for myself.

From the middle: "The Ars editorial team had resolved even before I plugged in the device that we'd be donating any monies it generated to the EFF. So after I'd gotten a representative sample of bitcoins, I was ready to stop and donate. However, there was still one major aspect of Bitcoin mining that wasn't terribly clear to me. How, exactly, does one cash out?"

From the end: "Both our cash from the first miner and our bitcoins from the second have been turned over to the EFF, and our second Butterfly Labs miner has been returned to its manufacturer...."

The second chunk of BTC was donated directly to the EFF without being converted into dollars.

not complicated at all. you received cash, thats income, all other questions stop right there.

you can only debate on how easy it is to track and if the government will find out.

You could hold the bitcoins instead of selling them. In that case, you haven't realized the income and may not need to declare the income (this year). I'd consult a tax lawyer before you decided whether and how to report that on your tax forms though.

This is *probably* not correct; I think BCs would most likely be treated as income and not as capital gains.

Capital gains occur when you own property and the value of the property increases; because you can't spend the benefit until you cash out, you also aren't taxed until you cash out. I.e., if you own 400 acres of farmland and the value of the land increases from $300,000 to $600,000, you won't be taxed on the increase until you sell the property. The same is true for increases in the value of stocks due to appreciation - you aren't taxed until you sell. (Although you are taxed on dividends right away).

But Bitcoins aren't like this; they are spendable as soon as they are created, just like money. So they are probably taxed in the same way - i.e., in the year that they are created. Presumably at the value they had in dollars at the time they were created.

They may *also* be subject to capital gains tax if you hold the BC and they increase in value, although, again, it's hard to be 100% sure.

I think the closest analogy would be to earning foreign country dividends: if you earn €1,000 in dividends in one year, you'll be taxed on $1,300 (assuming 1 € = $1.30), even if you keep the euros in a foreign bank. If the exchange rate rises to 1 € = $1.50 and you then exchange your euros for dollars, I believe you are also taxed on the $200 gain.

Perhaps I missed it but why are miners being paid? Serious number crunching accomplishes a task but what is the end result used for? I must not have enough knowledge about bitcoin to understand what's. going on here. (Time to go google the subject)

Miners are "paid" to validate transactions. Every time someone spends BTC, it generates work for miners, which keep the BTC network honest by ensuring bitcoins can't be spent twice.

Miners get BTC in two ways:

1) Right now, every time a block of transactions is validated, the miner that validated the transaction is allowed to award itself 25 new BTC. The number halves itself at increments—last year it was 50, and at some point it will go down to 12.5. Right now, this is the primary means by which miners get paid and also the method by which new BTC are generated. As the number of extant BTC approaches the maximum of 21 million, this reward will decrease to a very low number.

For miners in a pool, the 25 BTC reward is split among pool members according to that pool's rules. Miners mining alone can keep the whole amount. Over a long enough timeline, the amount of BTC you get from mining alone and from mining in a pool is probably about the same, but it'd have to be a reaaaaaaaaaaally long timeline; the only way to reliably mine BTC right now is to join a pool and accept tiny incremental payouts.

2) As the new BTC generation rate decreases, miners will be rewarded a portion of the transaction they're validating instead—there aren't many "transaction fees" on transactions yet, but that will eventually become the incentive to continue mining as new BTC creation levels decrease.

5GH 6 months ago would have yielded 5-7 coins a day. The difficulty is set very dynamically and no more than 3600 bitcoins are generated on any given day.As more of these ASIC based machines come online less of the pie to go around.

Do these have to stay plugged in via USB with a computer on and feeding them 24/7? Or could they be placed in the garage and a laptop taken out and plugged into them every few days to update?

I have to admit... I'd love one of these things, so tempted but like so many others I did some research and can't quite stomach buying from Butterfly Labs at the moment.

Their sales copy says "it could be 2 months or more" for delivery. Frankly I could wait 2 months if they said it'd be 2 months, but 2 months or more is a bit shady... You read further and they say right now that they are delivering units ordered June 2012. Should one deduce that 2 months or more really means 12 months?

Well if the exchanges are paying out via money orders which is virtually the same as cash, it is not traceable.

he probably would have not earned a single bitcoin in a full month of solo mining.. it's one of those things, were you mine for 3-6 months and then one day, bam you get 25 coins. You could be very unlucky and never get them, or very lucky and get them on the first day.

It would have been cool if he ran independently (not in a pool) for an equal test period to see which method generated more btc.

You overlooked something. When you run independently, you ONLY get paid when you find the golden ticket.. and you get 25 Bitcoins. Being as how this was generating 3 Bitcoins in roughly 2 weeks while in the pool, he would have received >0< Bitcoins running on his own for 2 weeks.

I haven't seen this answered anywhere yet (or I haven't looked hard enough...), but what incentive(s) do the various bitcoin exchanges have for exchange this virtual, not-officially-recognized currency, for real hard cash? Other than exchanging bitcoins for real-world currency, bitcoins can't really be used for anything else, can they?

They can. BitCoin actually has uses, otherwise it wouldn't have any value at all.

There are a (growing) number of companies who accept BitCoin as an alternative form of payment. Ie, you can now rent a server at RackSpace and pay by BitCoin (instead of PayPal or VISA/MasterCard/AMEX).Those companies usually don't hold on to their BitCoin, they convert it to a "real" currency ASAP.

Thus, real people wish to convert "real" currency into BitCoin and other real people which to covert BitCoin into real money.And the exchanges do that, while charging a fee in the process.

So the basic takeaway is that today, there is no ASIC miner you can buy and have in hand in the next few months. And by the time one of these would arrive, it's likely going to be both outdated and not a good value. I didn't see anything that's actually available for delivery now except for the $200+ USB key thing that does 300MH/s (cheaper to run than a video card I guess, only 2.5W). But with a bunch of other people bringing in GH/s boxes, you're kind of SoL.

I would have loved to have one of those $1300 Avalons when they came out, but I assume it was a similar deal, only the earliest of early adopters have them in time to be a jackpot payoff.

Month over month the difficulty of computing a block has increased roughly 10-15% every month in the past two years. Once these ASIC-based miners come online en masse, it will spike and gradually come back to about that same level. At the same time, the scarcity of the bitcoins and remaining pool will necessarily mean more power to draw to compute each block. Also remember that if you get a return that is proportionate to the work you do, once more of these devices start running, your share will drop like a rock. Probably in the next year it will not be worth it and some new advance would be needed.

Ars probably got a good look at a prototype unit when relatively few such devices run in the network. Expect the ROI to rapidly diminish over the next six months, to the point only early adopters and those who somehow can run on solar power make any money.

This ignores exchange rate fluctuations, inflation relative to the bitcoin, etc. Only the big boys will be making money on this in the next year, assuming Congress doesn't outlaw it in some ridiculous witch hunt.

yep, i already figured this out a couple months ago. You can mine litecoin pretty fast now. A ~1800$ rig just for litecoin should net you a solid ~3 coins per day. (4x Radeon 7970), I mine .28 coin per day on my GTX 570. But I did not buy any special hardware, just what I got laying around. I think it cost more in power at current exchange rates, but im betting litecoin's will be worth 50$ one day. And hopefully I got a few hundred of them by then

I notice bitcoin has taken a pretty big hit the last couple weeks, down to 95$. Litecoin has been pretty volitile too, it normally sits around 2.60$, but it's fluctuated between 2.10 and 2.70 the last few weeks. Sitting at 2.73 today.

So the basic takeaway is that today, there is no ASIC miner you can buy and have in hand in the next few months. And by the time one of these would arrive, it's likely going to be both outdated and not a good value. I didn't see anything that's actually available for delivery now except for the $200+ USB key thing that does 300MH/s (cheaper to run than a video card I guess, only 2.5W). But with a bunch of other people bringing in GH/s boxes, you're kind of SoL.

I would have loved to have one of those $1300 Avalons when they came out, but I assume it was a similar deal, only the earliest of early adopters have them in time to be a jackpot payoff.

I'm fortunate in that I received an email from Butterfly Labs on Friday that my Jalapeno was shipped last week so I should have it in hand by Wednesday. Of course, I have been waiting since last September so my patience with BFL has been strained,

But there are other vendors shipping ASIC devices right now. You mentioned Avalon, who are shipping their second batch of 300 units, which mine at 67Ghs/sec, and are taking orders for a third batch. They are also selling the bare ASIC chips they designed so you could build your own box if you know what you're doing (check out VMC for an ingenious example of this). ASICMiner are selling blades of their own custom ASIC chips as well as some nifty little USB sticks with a single ASIC chip that can mine at 330Mhs/sec (about the same as a GPU), but consume only 3 Watts of power. Then there is the Swedish firm KnCMiner which is a bit like Butterfly Labs in that they are taking pre-orders for ASIC devices, but haven't shipped any product yet.

This suggests the market for ASIC miners is very hot right now, and while the Avalon owners saw their investment paying off in February and March, ASICMiner customers and BFL customers are just now seeing their results while KnC customers may have to wait a while.

GPU: A fellow with 3ea AMD/ATI 7970s on a motherboard was generating 2050Mhash/sec. 850Watts at the wall. Generates: $4.55/day. Power used: $3.06/day. Net profit: $1.49/day. (If BTC remain at $94.16, the Triad 7970 system will remain profitable until the difficulty reaches 31.72M. When ARS ran the first story on this BFL Jalapeno miner, the difficulty was ~11.56M. Then it jumped to ~12.65M. Then ~15.58M. Then ~19.33M. And now ~21.33M. It gets updated every 2 weeks. So we'll likely pass 31.72 in a month.)

FPGA: X6500 FPGA Miner: 400Mhash/sec. 17.2Watt. Generates: $0.89/day. Power used: $0.06/day. Net profit: $0.82/day. (note rounding error). (If BTC remain at $94.16, the X6500 will remain profitable until the difficulty hits 316. On the other hand, if you bought one at full price ($550) today, it'd take around 5 years to break even IF the difficulty and BTC price remained at today's level. i.e. A Bad Investment.)

ASIC: BFL Jalapeno's better set of stats: 5500Mhash/sec. 30Watt. Generates: $12.21/day. Power used: $0.11/day. Net profit: $12.10/day. (If BTC remain at $94.16, the Jalapeno will remain profitable until the difficulty reaches 2,346.85M which should be awhile.)

Frankly as a hardware reviewer since 98, I'm pretty disgusted that they are seeding review units for a product that clearly has been paper launched. This would be the equivalent of 3dfx seeding reviewers with the Voodoo 5, and is the equivalent of Intel and their 1GHz paper launch of the Pentium III Coppermine. http://www.theregister.co.uk/2000/07/11 ... price_war/Mike would call them on out it. Why even write an article about this? Oh but we are donating to the EFF. Do you have any idea how small the real numbers of these are in the wild? Could there actually be more "review" units out there? Exactly how the hell do you review this thing anyway. Its the equivalent to shooting a fish in a barrel. People's hard earned money is what is funding Butterfly labs, and instead the "review sites" are making money off of ads. That is frankly wrong on many levels, and these review units all need to go to the buyers in the order of purchase now. No one needs these "reviews" anyway.

I'm hoping that the worst case scenario is that I can mine half the value of the machine and ebay it for a 50% loss, thereby breaking even. Best case scenario is riches beyond my wildest dreams! Actually, I guess worst case scenario is that I lose $1280 because BFL steals my money.

I'm hoping that the worst case scenario is that I can mine half the value of the machine and ebay it for a 50% loss, thereby breaking even. Best case scenario is riches beyond my wildest dreams! Actually, I guess worst case scenario is that I lose $1280 because BFL steals my money.

The only reason I haven't ordered one is that we have no idea when they will actually ship it.

The only reason I haven't ordered one is that we have no idea when they will actually ship it.

Assuming that BFL is trustworthy, it ships when it ships and if you're truly curious about mining, it's better to get in line sooner than later. I'm going to give them 10 weeks to ship mine before I try a charge back with my credit card company.

The only reason I haven't ordered one is that we have no idea when they will actually ship it.

Assuming that BFL is trustworthy, it ships when it ships and if you're truly curious about mining, it's better to get in line sooner than later. I'm going to give them 10 weeks to ship mine before I try a charge back with my credit card company.

Yes, the trustworthiness of BFL is definitely questionable. But there are additional risk factors as well. The long term price stability of bitcoin is unknown - if the price crashes, the endeavor becomes less profitable. Furthermore, there is no way to tell at what rate you will be able to generate bitcoins by the time you get the miner.

The long term price stability of bitcoin is unknown - if the price crashes, the endeavor becomes less profitable. Furthermore, there is no way to tell at what rate you will be able to generate bitcoins by the time you get the miner.

Well that's the risk portion of it.

You're making virtual currency, you gotta be willing to accept some risk. In my case about $1300. But the potential is huge. Even now, three years in, Bitcoin is very much in its infancy. Being at the forefront of something is exciting. Eventually, assuming things go as planned, you'll have 8 billion people for 21 million bitcoins (14 million in our lifetime?). There's huge upside for relatively small risk.

I should read up on the crypto involved in bitcoin. It sounds like the claims are that it is different enough from regular SHA256 so developments in miners can't be turned right into hash crackers. But I have to wonder what some experts in crypto math could do with all this if they really put their mind to it.

Another question is if this could be used to enhance security. IIRC, one excuse some sites have used for limited character sets, length limits on their passwords and other weird stuff is they expense of computing hashes for a high volume of customers. Perhaps an ASIC like this could reduce that strain, and maybe used to secure other data center transactions too. Perhaps the various companies working on ASIC miners can find a market after their designs are obsolete as miners.

I had a look at Litecoin after reading this article. Buying Litecoins seems incredible complicated for a normal internet dude like me. It seems to me that the only way to buy Litecoins is 1) buy Bitcoins at MtGox, then sell them via another exchange (BTC-e) for Litecoins, or 2) Buy directly at BTC-e

The problems I have with these options are:

1) I know MtGox got hacked some time ago, can I trust them to keep my personal data safe? They want proof of residence AND a scan of my photographic ID for fcks sake.

2) Do I want to trust my personal information and credit details to some (shady) russian money transfer companies (interkassa.com?!?).

Let's just say, hypothetically speaking of course, that I live in a complex with all utilities included. (That is, no cost to me for electricity.) Any investment suggestions? :-]

There are multiple cases of 'investors' just like you who ran ridiculous mining rigs that used tons of electricity, generated tons of heat, required excessive cooling (requiring yet more electricity) and they were evicted for doubling or tripling their energy use.

I'm shocked that people are currently placing orders with BFL, even after understanding that difficulty is rising fast, units are shipping slow, and they've gotta lay out their cash today to get a unit 6 or 12 months from now. Bitcoin seems to be an increasingly risky investment, if you're following the news on bitcoin-based exchanges and the falling value.

Frankly, I think bitcoins are the modern Ponzi scheme. If you get in early, mining bitcoins, and get out early enough, you're golden. The market will crash when all of the bitcoins have been issued. None of us will live to see that, but in the meantime, it's a hardware arms race.

I get the impression Bitcoin really only makes sense if you're in a situation where you don't pay for electricity. Like I could see setting one of these things up in a college dorm room. You could also take it into work, disguise it as something else, and steal electricity.